Can You Claim Damages for a Lost Commercial Opportunity?

Opportunity cost as a compensable loss

In commercial litigation, “opportunity cost” is not ordinarily a free-standing category of damages. The legally recognised claim is for the loss of an identifiable commercial opportunity caused by the defendant’s wrongful conduct. That opportunity may involve alternative employment, investment, lending, acquisition or business activity which the claimant would have pursued but for the contravention.

The governing objective remains compensation for actual prejudice. In Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [38]-[49], the High Court explained that the court must identify the prejudice or disadvantage caused by the contravening conduct and compare the claimant’s actual position with the position that would otherwise have existed. A claimant cannot recover merely because another use of money or time was theoretically possible.

Causation and the counterfactual

The first task is to formulate a clear counterfactual. The claimant must identify what would probably have occurred absent the wrongful conduct. Causation is determined as a matter of practical common sense: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525. The wrongful conduct need not be the sole cause of the loss, provided it materially contributed to the claimant altering its position: Henville v Walker (2001) 206 CLR 459 at [14], [61]-[62].

Where several representations induce a single transaction, it is unnecessary to assign a separate portion of the resulting loss to each representation. In Kytec Pty Ltd v Prolearn Corporation Pty Ltd [2024] VSCA 23 at [274]-[276], the Court distinguished misleading representations from divisible contractual breaches. Several representations may operate cumulatively to induce one act of reliance, which then causes the financial loss.

The counterfactual may concern a past hypothetical event. The fact that the relevant alternative did not occur does not make it legally irrelevant. Kytec at [278]-[280] confirms that a past hypothetical is assessed by the same opportunity-loss principles applicable to future possibilities.

Establishing a valuable opportunity

The claimant must establish, on the balance of probabilities, that the wrongful conduct caused the loss of an opportunity having more than negligible value. Once that threshold is crossed, the claimant is not required to prove that the opportunity would certainly have succeeded.

This two-stage approach derives from Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355–356 and was restated in Berry v CCL Secure Pty Ltd (2020) 271 CLR 151 at [32]. The existence and causal loss of a valuable opportunity must be proved on the balance of probabilities. Its value is then assessed by reference to the probabilities and possibilities affecting its realisation.

Accordingly, evidence of a merely abstract intention to “do something else” will usually be insufficient. Useful evidence may include contemporaneous applications, negotiations, competing business proposals, finance capacity, prior earnings, market demand, available contracts and evidence of the claimant’s ability and intention to pursue the alternative.

Valuing the lost chance

The value of the opportunity is its anticipated net benefit, adjusted for the probability that it would have materialised and succeeded. Gross revenue is not the appropriate measure. Operating costs, implementation expenses, market risks, competing causes and other contingencies must be considered.

The assessment is one of informed estimation rather than mathematical certainty: Sellars at 355-356 and Berry at [32], [65]-[68]. Importantly, there is no automatic percentage discount. In Kytec at [309]-[329], the Court accepted that contingencies may be incorporated through a conservative comparator or a single-step estimate instead of calculating an undiscounted figure and then applying a separate percentage reduction.

Provident Capital Ltd v John Virtue Pty Ltd (No 2) [2012] NSWSC 319 illustrates the evidence-specific nature of the exercise. The Court accepted that funds would have been lent to another borrower and that the opportunity was substantial rather than speculative. After considering borrower availability, lending criteria and settlement risk, the Court valued the chance at 50 per cent: at [208]-[219]. That percentage was a factual assessment, not a general rule.

Pleading discipline and double recovery

The alleged opportunity should be expressly identified in the pleadings and supported by evidence directed to its availability, causation, net value and probability of success. As Berry emphasises at [65]-[68], the formulation of the loss determines the relevant counterfactual and evidentiary burden.

Conclusion

Finally, lost-opportunity damages must not duplicate transactional, reliance or expectation damages. Alternative counterfactuals should be pleaded separately. The court should adopt the measure that compensates the proven prejudice without placing the claimant in a better position than if the wrongful conduct had not occurred.

If you have any further questions on the recovery of opportunity costs in commercial litigation, please do not hesitate to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube, LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google review.

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article. If you require specific legal advice, please contact us.