This article is based upon the Supreme Court’s decision in the case of Atlanta Building Pty Ltd v Abela [2026] NSWCA 126.
This case involved the termination of a building contract. Atlanta Building Pty Ltd, the builder, terminated the contract and commenced proceedings in the District Court claiming, amongst other amounts, loss of profit.
The claim for loss of profit did not succeed in the District Court due to deficiencies in the expert evidence. Atlanta Building Pty Ltd appealed to the Supreme Court, Court of Appeal and lost the appeal for the same reasons it did not succeed in the District court.
The reasons are summaries succinctly in the headnote of the Supreme Court decision:
The primary judge was correct to refuse Atlanta’s claim for lost profits. Atlanta did not adduce admissible evidence of the actual likely costs of completing the work to support its claim that it expected to achieve a profit margin of 15% of the remainder of the contract price. The only evidence in support of that margin was given by Atlanta’s expert witness, who took the figure of 15% as the midpoint of the “usual contractor margin in the industry, which was between 10 and 20%” and which the expert thought was supported by the fact that the Contract provided for a margin of 15% in calculating the costs of variations under the Contract. However, the margin achieved or applied across the industry was not evidence of the profit that Atlanta was likely to earn on a specific fixed-price contract. And the fact that the parties agreed to a margin of 15% for variations that would be priced on a cost-plus basis was not a sound reason for concluding that that was the profit that Atlanta would be likely to earn on the fixed-price component of the Contract.
Essentially, Atlanta Building Pty Ltd made a fundamental error in the preparation of its expert evidence. Atlanta Building Pty Ltd thought that it was sufficient to argue that it was entitled to 15% margin as this was the midpoint of the usual margins charged in the industry at the time, being 10% to 20%.
Both the District Court and Supreme Court decisions confirm the correct approach to proving loss of profit is to prove the amount of profit which Atlanta Building Pty Ltd would likely have made on the work and under the contract.
The decision also notes that although the parties may have agreed a 15% profit margin applies to variations, it does not automatically follow that this represents the profit which Atlanta Building Pty Ltd would have made had the contact been completed.
It is not uncommon for expert witnesses to look for shortcuts when preparing their reports. Instead of reviewing the scope of work and crunching the numbers to calculate reliable costs estimates, occasionally there is the expert witness who will try and take a shortcut by relying upon a percentage or an amount from somewhere or someone else which does not relate to the loss being claimed.
Sometimes the client will fall into the trap of thinking the shortcut is an advantage as it saves time and cost. However, as occurred with Atlanta Building Pty Ltd, this may end up becoming a costly mistake.
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Important Notice:
The information provided in this article is general information only and should not be relied upon as legal advice or be used as a substitute for obtaining legal advice. The examples provided have been simplified to explain a particular issue and there are other factors which need to be taken into consideration. The specific circumstances relating to you impact upon your legal rights and obligations and personal legal advice based upon your circumstances should be obtained. This area of law changes frequently and the law may have changed after the time this article was prepared, up-to-date legal advice should be obtained.