Courts and tribunals expect transparent, evidence-based counterfactuals. Solicitors who understand how experts build but-for models can draft tighter instructions, anticipate disclosure requirements, and identify weaknesses in the opposing expert's analysis before trial.
Building the But-For Model
The but-for test asks: but for the defendant's breach, what would the claimant's financial position have been? The expert constructs a counterfactual scenario using pre-breach data, contractual terms, and relevant market conditions at the date of breach.
The model typically proceeds in stages. First, establish the pre-breach baseline, historic revenue, margins, and cost structures from audited accounts and management information. Second, project the but-for performance over the loss period using assumptions justified by pre-breach trends, contract terms, and market evidence. Third, establish the actual performance post-breach. Fourth, calculate the difference, adjusting for variable costs avoided and any mitigation achieved.
The counterfactual must be realistic, not optimistic. Courts scrutinise projections that assume growth rates never previously achieved or ignore market downturns unrelated to the breach. The expert should document every material assumption and explain why alternatives were rejected.
Data Sources and Disclosure
Robust but-for analysis depends on quality source data. Solicitors should provide: signed contracts and variations; financial statements for at least three years pre-breach; management accounts for the loss period; budgets and forecasts prepared before the breach (which carry significant weight as contemporaneous evidence of expectation); correspondence showing trading expectations; and industry or market data supporting projection assumptions.
Where the claimant's internal forecasting was poor before the breach, the defendant will attack the but-for projection as speculative. In such cases, experts may rely more heavily on historic actual performance, comparable businesses, or market indices. Early disclosure of damaging documents is preferable to late surprises at the expert meeting.
Digital trading data, CRM pipeline reports, and ERP system exports increasingly form part of the dataset. Ensure litigation hold covers these systems from the outset of the dispute.
Assumption Transparency and Sensitivity Analysis
Every material assumption in a but-for model should be stated explicitly: revenue growth rates, gross margin percentages, fixed cost treatment, allocation methodologies, and the length of the loss period. CPR Part 35 requires experts to state the substance of all material instructions and identify matters of opinion.
Sensitivity analysis tests how the loss figure changes when key assumptions are varied within reasonable ranges. Courts value this because it demonstrates intellectual rigour and helps tribunals understand which assumptions drive the claim. A claim that collapses when margin assumptions move by two percentage points is materially weaker than one that remains substantial across a reasonable range.
Solicitors should ask experts to present a base case, optimistic case, and pessimistic case where appropriate, or at minimum a sensitivity table on the three most material variables. This assists without undermining the primary opinion.
How Courts Assess But-For Evidence
English courts apply the compensatory principle from Robinson v Harman [1848] 1 Ex 850: the claimant should be placed in the position they would have been in had the contract been performed. The but-for methodology is the standard forensic approach to achieving this in profit claims.
Judicial scrutiny focuses on: whether the counterfactual is supported by contemporaneous evidence; whether the expert has properly distinguished breach-related downturn from external market factors; whether variable costs have been correctly deducted; and whether mitigation has been fairly credited. In Lavarack v Woods of Colchester Ltd [1967] 1 QB 278, the court emphasised that the claimant must prove loss on the balance of probabilities, the expert's role is to assist with that proof, not to substitute speculation for evidence.
Where multiple breaches or contributing causes exist, the expert must address causation explicitly, what portion of the shortfall is attributable to the defendant's breach versus other factors. Failure to address this invites successful challenge under causation principles.
Common Attack Vectors and How to Defend Them
Defendants typically attack but-for models on several grounds: the projections are too optimistic; the claimant would not have achieved forecast profits even without the breach (bad bargain argument); external market conditions caused the loss; the claimant failed to mitigate; and the expert has double-counted revenues or failed to deduct avoided costs.
Effective defence requires pre-emptive structuring. The expert report should include a section addressing each foreseeable attack with supporting evidence. Where the defendant's expert produces an alternative but-for, the claimant's expert should prepare a reconciliation explaining the differences assumption by assumption, not merely asserting the opponent is wrong.
Solicitors should instruct experts to attend joint meetings with a clear agenda addressing disputed assumptions. Agreed facts should be recorded; disagreements should be narrow and capable of focused cross-examination. A but-for dispute that collapses into argument about every line item is expensive and rarely persuasive at trial.
Frequently Asked Questions
What is the but-for methodology in contract damages?
The but-for methodology compares the claimant's actual financial performance after breach with a counterfactual showing what would have happened had the contract been performed. The difference, after appropriate cost adjustments, represents the lost profit claim.
Can lost profits be claimed without a but-for model?
Courts expect a structured comparison between actual and counterfactual positions. While simple cases may involve straightforward arithmetic, any claim involving projections or multiple variables will require a documented but-for analysis from a qualified expert.