Lost Profit: How to Calculate and Prove It in Court

Recovering lost profit in a Ukrainian court is harder than recovering actual damages: it is not enough to show that you “failed to receive” income — you must prove that you would have received it for real and in the ordinary course of business, not hypothetically. The gap between a well-founded calculation and a figure that looks impressive but is unproven is often the gap between winning and losing the case. As a forensic economic expert, I will explain what a sound calculation of unearned income rests on and what most often destroys a claimant’s position in court.

Legal basis: what the law means by lost profit

The concept of damages is set out in Article 22 of the Civil Code of Ukraine (TsK). It divides them into two components: actual damages (losses a person has suffered and expenses to restore the violated right) and lost profit (upushchena vyhoda) — income a person could realistically have received under ordinary circumstances, had the right not been violated. The words “realistically” and “under ordinary circumstances” are the key to the entire question of proof. The law protects not the maximum possible income, but the ordinary income expected under a normal course of business.

For contractual relations, the scope of liability is specified by Article 623 of the TsK: a debtor who has breached an obligation must compensate the losses caused. Here the law makes two important points that are often overlooked. First, it is the creditor who must prove the amount of the losses — the burden of proof lies with the injured party. Second, in determining unearned income, account is taken of the measures taken by the creditor to obtain it and the preparations made for that purpose. In other words, the law does not protect passive expectation of income — you need evidence that you were genuinely preparing to earn it. In non-contractual (tort) relations, lost profit is compensated on the general grounds of liability for harm caused; in commercial disputes, unearned profit as a component of damages is named directly in Articles 224–225 of the Commercial Code of Ukraine (HK).

The main problem is provability, not arithmetic

In my expert practice, a lost-profit calculation rarely fails on the arithmetic. It fails on provability — on the court not seeing the reality of the income. This is the main line of the defendant’s defence: they will argue that your income was not ordinary but hypothetical, that it depended on a host of conditions and was not guaranteed at all.

The Supreme Court has consistently held in its rulings that lost profit cannot rest on assumptions. Only the income the creditor would realistically have received under ordinary conditions is recoverable, and only where the defendant’s breach was the decisive obstacle to receiving it. A theoretically justified possibility of earning a profit is not, in itself, a ground for recovering it. In commercial proceedings, evidence is assessed on the standard of probability (Article 79 of the Commercial Procedure Code, HPK): the court sides with the party whose evidence is more convincing and coherent, not the party whose claimed sum is larger. A similar approach is applied in civil proceedings.

The practical conclusion is simple: a strong calculation is not one with a big number, but one in which every hryvnia rests on the ordinary, document-backed course of your activity.

Causation: without it, the calculation is worthless

The second pillar of proof is the causal link between the breach and the failure to receive income. You must show not merely “we earned less,” but that the income disappeared specifically because of the particular breach — not because of the market, the season, your own management decisions, or other parallel causes.

What the court looks at, and what is worth preparing in advance:

• Directness. The breach must be the immediate, not a remote, cause of the loss of income.
• Excluding alternatives. If the drop in revenue could have occurred without the breach (a general fall in demand, actions of third parties, your own miscalculations), the defendant will exploit it. These versions must be closed off with evidence beforehand.
• Mitigation measures. The law expects you to have taken reasonable steps to reduce the loss. Passivity weakens your position.

If causation is not proven, the court will reject even an arithmetically flawless calculation.

Methods of calculating lost profit

There is no universal formula — the method is chosen to fit the specific situation and the available documents. In practice, three main approaches work, and they are often combined.

Method	When applicable	What it is based on
By prior periods	Activity is stable, there is a history before the breach	Actual income/profit figures for comparable past periods
By concluded contracts	There are specific frustrated deals, orders, specifications	Terms of real contracts left unperformed due to the breach
By average profitability	The expected result of an industry/line must be derived	Forecast sales volume and confirmed profitability, less costs

By prior periods

The most common and most convincing approach for a “going” business. We take actual income figures for comparable periods before the breach (adjusted for seasonality and trend) and show what the result would have been had the activity simply continued as normal. The strength of the method is that it rests not on wishes but on your own confirmed history.

By concluded contracts and specifications

Used when there is a specific frustrated deal — a signed contract, specification, or order that could not be performed or realized because of the counterparty’s breach. Here the ordinariness of the income is the easiest to prove: the parties had already agreed the price, volume, and terms. It remains to show that the deal fell through specifically because of the breach, and to deduct from the price the costs that would have been incurred to perform it.

By average profitability, less costs

Applied when there is no direct history or contract, but the expected sales volume can be justified. That volume is taken, the confirmed profitability is applied to it, and — critically — all the costs needed to earn that income are deducted. This method is the most vulnerable to objections and therefore demands the most careful justification of its underlying assumptions.

Which documents are needed

A calculation is only as strong as its documentary base. A study usually requires:

• contracts, specifications, orders, correspondence — whatever confirms the reality and ordinariness of the expected income;
• sales history and accounting and tax reporting — actual figures for prior periods;
• cost calculations, data on variable and fixed costs — without them there is no way to move from income to profit;
• evidence of measures taken to obtain the income and mitigate the loss (searching for another counterparty, attempts to sell, and so on);
• primary documents confirming every figure in the calculation.

A blank space in this list is a vulnerability. Most often it is precisely the lack of cost data that weakens a case, because without it any calculation can be accused of overstatement.

A typical mistake: gross revenue instead of net profit

This is the most common and most costly mistake I see in “do-it-yourself” calculations. The claimant takes the entire expected revenue from a frustrated deal and claims it as lost profit. But lost profit is unearned net income (profit), not gross turnover.

The logic is straightforward: to earn that income you would still have incurred costs — buying goods, raw materials, logistics, wages, commissions. You did not incur those costs, because the deal did not happen, so they are not your loss. Claiming gross revenue means demanding income that has not been “cleared” of your own unavoidable costs, and the court duly rejects such a sum.

Consider a generalized example:

Indicator	Incorrect (gross approach)	Correct (net approach)
Expected revenue from the deal	UAH 1,000,000	UAH 1,000,000
Costs that would have been incurred	not accounted for	– UAH 750,000
Claimed lost profit	UAH 1,000,000	UAH 250,000

The figures are illustrative and serve only to demonstrate the principle. A correct calculation almost always yields a smaller but defensible figure that is hard to shake in the hearing. Note separately that the base should also exclude any income you actually earned from alternative sources thanks to your mitigation measures.

A practical algorithm

For a calculation fit for court, not just for the statement of claim, proceed step by step:

1. Fix the breach and the moment from which the losses began.
2. Choose the method to fit the available evidence — history, contract, or profitability.
3. Justify the ordinariness of the income with documents, not expectations.
4. Prove causation and close off alternative explanations for the loss.
5. Move from income to profit — deduct all costs that would have been incurred.
6. Account for the measures taken to obtain the income and mitigate the loss.
7. Back every figure with a primary document.

This is precisely why the calculation of lost profit is often entrusted to a forensic economic expert. The question “what is the amount of unearned income based on the documents provided” lies within the field of forensic economic examination — in particular the expert specialisms covering the study of documents on the economic activity of enterprises and organisations and of financial and credit operations. Such an examination is conducted under the Law of Ukraine “On Forensic Expert Examination” and the Instruction on the Appointment and Conduct of Forensic Examinations (Ministry of Justice order No. 53/5) by certified experts entered in the State Register. An independent, methodologically grounded opinion gives the calculation a weight that is hard to achieve through a party’s own arithmetic.

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If you are preparing a claim for lost profit or, conversely, contesting an opponent’s inflated calculation, it is worth assessing in advance how well the sum will withstand scrutiny in court. I would be glad to help with a consultation or with a forensic economic examination, so that your calculation of unearned income is not hypothetical but documented, proven, and resistant to objection.