Calculating financial damages in UAE commercial disputes is one of the most contested aspects of financial litigation. Claimants must prove both that they suffered a loss and that the loss was caused by the defendant's actions. The amount must be established by evidence. Expert financial reports are the primary vehicle for that evidence, and the methodology chosen directly affects whether the court adopts the calculation.
The Legal Standard for Damages Claims
UAE civil law requires that damages be proven, not merely asserted. Under Articles 389 and 390 of the Civil Transactions Law, a claimant is entitled to compensation for actual losses suffered and for lost profits, provided that the profit was a natural consequence of the breach and that earning it was reasonably expected. Speculative or hypothetical profit cannot be recovered.
This legal framework shapes the forensic approach. An expert calculating lost profits must establish a baseline: what income would the claimant have earned had the breach not occurred? That baseline must be grounded in the historical performance of the business, in comparable industry data, or in contracted revenue that was demonstrably lost. An expert who projects losses into the future must justify each assumption, and courts scrutinise those assumptions with care.
The Three Main Methodologies
The before-and-after method. This compares the claimant's financial performance before the breach with performance after. If a business was generating a certain level of revenue and profit before the defendant's actions, and that level declined following those actions, the difference, adjusted for market and other external factors, represents the claimed loss. This approach requires reliable historical financial data and must account for non-defendant factors that may have affected performance independently.
The yardstick method. Where historical data is limited or unreliable, a comparable business or industry benchmark is used to establish what the claimant would have earned. This is common in disputes involving new businesses or businesses whose records were disrupted. The selection of an appropriate yardstick and the basis for comparison are often the most technically contested aspect of this approach.
The but-for analysis. This models what the claimant's financial position would have been absent the breach, using contract terms, business plans, or market data as the basis. It requires careful modelling of assumptions, and each assumption is subject to challenge. Courts expect the expert to present sensitivity analysis showing how the result changes if key assumptions are varied.
Common Errors That Undermine Calculations
Failure to address mitigation. UAE law requires claimants to take reasonable steps to mitigate their losses. A calculation that does not address whether mitigation was possible, and whether the claimant took appropriate steps, is open to challenge from the outset.
Reliance on unverified management projections. Business plans and management forecasts are useful starting points but are not independent evidence. An expert who adopts management's projections without verification produces a report that an opposing expert will identify as self-serving. Independent verification of the key assumptions is a minimum requirement.
Failure to separate external factors. Losses in the period following a breach may be attributable partly to the breach and partly to market conditions, competition, or regulatory change. A calculation that does not isolate the defendant's contribution overstates liability and is vulnerable to challenge on that basis.
Double counting. In complex cases with multiple heads of claim, there is a risk that the same loss is calculated under more than one head. Courts and opposing experts are alert to this, and it damages the credibility of the entire calculation when identified.
Insufficient audit trail. A calculation that produces a number without a transparent path from the underlying documents to the final figure is difficult to defend under scrutiny. Every material figure in an expert report on damages should trace to a specific document or clearly stated assumption.