Common Mistakes in Economic Loss 1 – Loss based on short period.

As forensic accountants, acting for either the plaintiff or defendant, we often see claims for economic loss in commercial litigation and personal injury based on a level of income that is only for a short period of time.

Where the basis of probable earnings is over a short period, the likelihood that other factors unrelated to the accident or damage that may explain the variance can be introduced. Factors unrelated to the accident or damage may include seasonal variations in sales, loss of key customers, timing differences, change in accounting policies, sales delayed. Choosing a longer period for the basis of probable earnings will limit the likelihood that other external factors will be significant.

Sometimes the short periods of loss are harder to prove that long periods. For example, a builder who claims he lost one contract as a result of the accident or damage. The economic loss in that instance will be reliant upon other non-financial evidence such as statements from the builder and the supplier.

Other examples include losses based on a limited number of payslips where significant overtime is involved. An examination of the annual earnings or the payslips for a longer period of time will often reveal that the overtime is seasonal, infrequent or not maintained over a longer period.