The most common grounds for an obligation to remunerate damages are unlawful deed and default. The legal obligation to pay damages is regulated in Section 10 of Book 6 of the Dutch Civil Code (BW). The basic assumption for the determination of damages is provided in Article 6:95 BW: “The damage that has to be compensated by virtue of a statutory obligation to repair damages (due by virtue of law), consists of material loss and other disadvantages, the latter as far as the law implies that there is an additional entitlement to a compensation for such damage.”
For the damages remuneration, a distinction is made between material loss and other disadvantages. In the latter case this can for example include immaterial damage. The latter damages aspect is not elaborated further here. The concept of material loss is elaborated further in the Law (Article 6:96 BW, Section 2):
– 1. A material loss includes losses suffered as well as missed profits.
– 2. The following damages also qualify for compensation as material loss:
a. reasonable costs to prevent or limit the damage which could be expected as a result of the event which makes someone liable;
b. reasonable costs for determining the nature and scope of the damage and of the liable persons;
c. reasonable costs for attempts to get satisfied on the basis of a settlement out of court.
Profit loss can be caused by many factors, such as infringement on intellectual ownership, interruptions of machines and equipment, wrong or late provision of services, etc. With regard to the costs made in order to prevent or limit damage applies as test that the scope of the costs must be reasonable, and that the measures taken are reasonable as well. For that matter, this does not imply that the measures indeed must have had the desired effect in order to prevent or limit the damage. Determining is that of the measures taken, it could be expected that they offered a reasonable chance of success.
Material loss can normally be established via two approaches, the direct and the indirect method. In case of the direct method, an inventory of the various damage elements is made, analysed, and established. Thereby one has to think for example of the lost gross profit (for example by losing clients) and the extra costs that must be made in relation to limiting the damage. A condition at the application of the direct method is that a limited, temporary period during which the damage occurs must be concerned, whereby a structural change of position of the enterprise is not concerned.
In case of the indirect establishment of damage, the value of the enterprise involved just before the event causing the damage is compared with the value of the enterprise after this event. The material loss then constitutes of the difference between those two values. In that case, a realistic vision should be developed on the most likely expected future earnings in both situations.
When carrying out a calculation of damages and corresponding survey, Sman Business Value distinguishes between two phases. The survey starts with an orienting and preparatory phase. Thereby especially the causality with regard to the damage suffered should be assessed. Thereby a two-tiered method applies. The first step concerns the so-called ‘conditio-sine-qua-non test’ whereby the question should be answered whether the damage would also have been caused if the event causing the damage would not have taken place.
A second requirement for establishing the causality concerns answering the question whether the damage can in all reason be attributed. After all, based on Article 6:98 BW: ‘Only damage that is connected in such a way to the event that made the debtor liable, that it, in regard of the nature of his liability and of the damage caused, can be attributed to him as a consequence of this event, is eligible for compensation.’
At the analysis of causality it should also be assessed whether aspects that reduce liability are concerned. The damage can for instance be the result of several events (Article 6:98 BW). If the damage is (partially) the result of own fault of the deprived party, then the obligation to pay remuneration for damages can be reduced (Article 6:101 BW). The judge is also authorised to lower the obligation for remuneration of damages (Article 6:109 BW). Only after the orientation with regard to the causality and attribution can be established which approach will be used for the benefit of determining the damage and the actual calculation of and reporting on damage can take place. As far as the report is concerned, the foundation and proof of evidence with regard to the causality between the event causing damage and loss of profit is of the greatest importance. Among other things, this requires a precise analysis of earnings during the respective period. Thereby other influences that are not related to the event causing the damage should be eliminated and/or left ignored. Thereby one can think of a general deterioration of the economic climate or special developments in the industry sector. Generally, this is not an easy exercise. However, if parts of the damage calculations cannot be proven and documented by facts, they will at least have to be made feasible. The Law offers an outcome for this as well: if the scope of the damage cannot be established precisely, it can be estimated by the judge (Article 6:97 BW).