Page 21 - Calculating Lost Profits

Chapter 3

Lost Profits as a Measure of Damages

Introduction

As described previously, damages are a monetary remedy in civil law. Black’s Law Dictionary defines
damages as "[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury."
fn 1 Lost profits are a measure of compensatory damages, which are intended to compensate an ag-
grieved party for harm caused by the wrongful act or acts that are the subject of the dispute. fn 2

As a measure of compensatory damages, damages based on lost profits redress a defendant’s unlawful
act or acts by compensating the plaintiff for the profits that would have been obtained "but for" (absent)
the unlawful act or acts. Lost profits damages are typically measured as but-for profits less actual and
mitigating profits, as illustrated in the following figure.

fn 1 Bryan A. Garner, Black’s Law Dictionary, Tenth Edition (2014), West Publishing Co., Thomas Reuters, United States of Ameri-
ca, p. 445.
fn 2 Other types of damages include nominal damages and punitive damages. Nominal damages are typically awarded if a compensa-
ble harm has occurred, but no substantial loss or injury exists to be compensated. Punitive damages are those damages awarded, in
addition to actual damages, if the defendant acted with recklessness, malice, or deceit. Punitive damages are intended to punish the
wrongdoer and deter certain misconduct.

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