1、 Background
In contract disputes, the defaulting partynot only needs to compensate the non breaching party for direct losses, but also for indirect losses, in order to obtain profit losses. However, further clarification is needed on how to define the scope, amount, and calculation criteria of profit losses that can be obtained, as well as how to provide evidence.
In a recent arbitration case of a salescontract dispute, due to the unilateral termination of our exclusive agency by the other party, we suffered significant losses. However, there is uncertainty about how to clarify and provide evidence for the loss of available benefits in the losses.
2、 Laws andregulations
(1) Civil Code ofthe People's Republic of China ("Civil Code")
Article 584: If one party fails to fulfillits contractual obligations or fails to fulfill its contractual obligations in accordance with the agreement, resulting in losses to the other party, the amount of compensation for losses shall be equivalent to the losses caused by the breach of contract, including the benefits that can be obtained after the performance of the contract; However, it shall not exceed the losses that the defaulting party had foreseen or should have foreseen at the time of entering into the contract as a result of the breach.
Article 591: After one party breaches thecontract, the other party shall take appropriate measures to prevent the expansion of losses; If appropriate measures have not been taken, resulting in increased losses, compensation shall not be sought for the increased losses.
The reasonable expenses incurred by theparties to prevent the expansion of losses shall be borne by the defaulting party.
Article 592: If both parties violate thecontract, each party shall bear corresponding responsibilities.
If one party breaches the contract andcauses losses to the other party, and the other party is at fault for the occurrence of the losses, the corresponding amount of compensation for the losses may be reduced.
（2） Interpretationof the Supreme Court on the Application of Law in the Trial of Disputes over Sales Contracts ("Judicial Interpretation of Sales Contracts")
Article 22: If one party to a salescontract breaches the contract and causes losses to the other party, and the other party claims compensation for the loss of available benefits, the people's court shall determine the scope of liability for breach of contract based on the claims of the parties and in accordance with Articles 584, 591, 592, and Article 23 of this Interpretation of the Civil Code.
Article 23: If one party to a salescontract obtains benefits due to the other party's breach of contract, and the defaulting party claims to deduct that portion of the benefits from the compensation for losses, the people's court shall support it.
3、 Definition,scope, and calculation criteria for loss of obtainable benefits
Although there is a viewpoint in the fieldof management theory that distinguishes available benefits from expected benefits or expected benefits, in practice and general theory, the concept of available benefits is equivalent to expected benefits or expected benefits, while the concept of performance benefits (in continental law systems) is equivalent to expected benefits or expected benefits (in Anglo American law systems).
According to current legal regulations,indirect loss, also known as loss of available benefits, refers to the benefits that can be obtained after the contract is performed. When calculating the loss of obtainable benefits, the court should comprehensively apply the rules of foreseeability, reduction, profit and loss offset, and fault offset to deduct the unforeseeable losses of the defaulting party, the improperly expanded losses of the non-defaulting party, the benefits obtained by the non-defaulting party due to the breach, the losses caused by the non-defaulting party's fault, and necessary transaction costs from the total amount of obtainable benefits claimed by the non-defaulting party.
According to factors such as the nature ofthe transaction and the purpose of the contract, the loss of profits can be mainly divided into production profit loss, which is common in the case of breach of contract for the purchase and sale of production equipment and raw materials; Loss of operating profits, commonly seen in cases of breach of contract or lease operating contracts; As well as loss of resale profits, it is common for the seller to breach the original contract in a series of sales contracts.
Generally speaking, the loss of resaleprofit is equal to the difference between the income from the non-defaulting party's subsequent sale and the cost of purchasing from the previous party. When the difference cannot be determined, it can be determined by referring to the benefits obtained by the defaulting party due to the breach.
4、 Allocation ofburden of proof for loss of obtainable benefits and key points of proof in contract dispute cases
The court will follow rationality inallocating the burden of proof when determining the loss of obtainable benefits. Usually, the defaulting party should bear the burden of proof that the non-defaulting party did not take reasonable measures to mitigate losses, resulting in increased losses, the non-defaulting party gained benefits from the breach, and the non-defaulting party was also at fault; The non-defaulting party shall bear the burden of proof such as the total amount of loss of available benefits and necessary transaction costs. Regarding foreseeable losses, evidence can be provided by non-defaulting parties or at the discretion of the court.