Dispute accountants build structured loss models that compare actual financial performance with a counterfactual but-for scenario, address remoteness under Hadley v Baxendale [1854], and credit mitigation. This guide explains the principal measures of damages, the methodology courts expect, and how solicitors should frame expert instructions.
Expectation Loss and the But-For Methodology
Expectation damages, often quantified as lost profits, restore the benefit of the bargain. The but-for test asks: what would the claimant's financial position have been absent the defendant's breach? The dispute accountant constructs a counterfactual using pre-breach accounts, contractual terms, and contemporaneous forecasts, then compares it to actual post-breach performance.
| Stage | What the expert does | Key evidence | | --- | --- | --- | | Baseline | Establish pre-breach trading pattern | Audited accounts, MI | | But-for projection | Model performance absent breach | Contract, budgets, market data | | Actual outcome | Document post-breach results | MI, ERP, sales data | | Net loss | Difference less avoided variable costs | Workings, sensitivity table |
Courts scrutinise projections that assume unrealistic growth or ignore external market factors unrelated to the breach. Sensitivity analysis on material assumptions, margin, volume, loss period, demonstrates rigour and assists settlement.
Reliance Loss and Wasted Expenditure
Reliance loss returns the claimant to the position before the contract was made. Under Anglia Television Ltd v Reed [1972] and CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985], wasted expenditure incurred in reliance on performance is recoverable where expectation loss cannot be proved or where the claimant elects reliance damages.
The dispute accountant identifies expenditure incurred in contemplation of contract performance, allocates shared costs fairly, and addresses the bad bargain defence, whether the claimant would have recovered the expenditure even if the contract had been performed. Reliance and expectation are alternative measures, not cumulative top-ups.
Hadley v Baxendale and Remoteness
Hadley v Baxendale [1854] limits recoverable loss to damages arising naturally from the breach (Limb 1) or within the parties' reasonable contemplation at contracting as the probable result of breach (Limb 2). Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] illustrates the distinction: ordinary profit loss on delayed machinery was Limb 1; exceptional government contract profits failed Limb 2 without specific disclosure.
Dispute accountants structure reports with a remoteness section for each consequential head, third-party penalties, downstream customer loss, supply chain disruption, identifying the limb relied upon and the knowledge evidence. Experts quantify on an 'if the court finds recoverability' basis where liability for a head is disputed, clearly labelling alternative scenarios.
Causation, Mitigation, and Contributory Factors
Causation requires the breach to have caused the loss on the balance of probabilities. Where multiple causes exist, market downturn, claimant's own conduct, third-party default, the expert apportions or explains the loss attributable to the defendant's breach. Mitigation under British Westinghouse Electric Co Ltd v Underground Electric Railways [1912] requires the claimant to take reasonable steps to reduce loss; failure to mitigate reduces recoverable damages.
The expert documents mitigation actually achieved (alternative supplier, redeployment of staff) and costs that would have been incurred in any event. Double-counting of revenue or failure to deduct avoided variable costs are common attack points at trial.
Building a Defensible Loss Model
A defensible model rests on contemporaneous evidence: pre-breach forecasts prepared before the dispute arose carry significant weight. The expert states every material assumption, provides reconciliations to audited accounts, and prepares a joint experts' meeting agenda addressing disputed variables.
Solicitors should instruct the expert to: define the loss period; identify each head of loss and the measure claimed; address remoteness for consequential heads; quantify mitigation; and present sensitivity analysis. Early instruction allows the expert to advise on document preservation and whether the quantum claim is viable before substantial costs are incurred, see our loss quantification service for typical deliverables.