A permanent impairment is not a longer run of lost earnings. It is a different measure with a different proof problem.
Start a conversation with Cournot, the Institute’s damages concierge, already scoped to lost business value. Pick a starting point, or describe the dispute directly.
Where conduct does not merely interrupt a business but permanently impairs or destroys it, the economic question changes. The measure becomes the value of the enterprise as it is against its value in the but-for world — a difference in worth rather than a sum of foregone earnings. This is valuation work, and it imports the whole apparatus of valuation into a litigation setting: income, market and asset approaches; the choice of a capitalisation or discount rate; assumptions about growth and risk that compound over long horizons. It is often the right measure and it is rarely the easier one, because a valuation performed for litigation is scrutinised in a way that a valuation performed for a transaction is not, and the discount rate alone can swing the conclusion by a wide margin.
The inputs are conventional. The scrutiny is not.
Value as the present worth of expected future cash flows. Most common in litigation and most sensitive to assumptions.
Value by reference to comparable companies or transactions. Persuasive when genuine comparables exist.
Value from the underlying assets. Relevant for asset-heavy or non-going-concern situations.
The single most consequential input. Small differences compound into very large ones.
When value is measured, and whether hindsight after that date may be used.
Capitalised earnings plus the same earnings claimed separately is a standard objection.
How the Institute approaches a valuation-based claim.
The largest numbers in commercial damages usually come from here, and so do the widest expert disagreements.
Two competent experts using the same cash flows and defensible but different rates can reach conclusions that differ by a multiple. Any serious assessment shows the number across a range of rates rather than asserting one.
When the impairment is permanent rather than temporary. If the business recovered, or would have recovered, the loss is a bounded run of reduced earnings and lost profits captures it. If the enterprise was destroyed, or is permanently worth less — customer relationships gone for good, a market position that cannot be regained, a going concern that ceased — then the loss is the value itself. The awkward cases are in between, where there is a period of depressed earnings followed by a permanently lower trajectory, and those require the two components to be separated explicitly rather than merged.
More than any other single input, and non-linearly. Because value is the present worth of a long stream of future cash flows, a change of a few percentage points in the rate can move the conclusion by a large multiple, and the effect grows with the length of the horizon. This is why opposing experts using identical projected cash flows routinely arrive at conclusions far apart. The practical consequence for counsel is that any valuation presented as a single point figure, without a stated range or sensitivity analysis, is presenting its most contestable assumption as though it were settled.
Sometimes, and only with an explicit account of why they do not overlap. The objection writes itself: business value is largely the capitalised value of future earnings, so awarding the earnings and the capitalised value of those same earnings compensates one loss twice. Where both are genuinely present — a period of interrupted trading, then permanent impairment — the standard discipline is to claim lost profits up to the valuation date and diminution in value from that date forward, with the boundary stated. An expert who cannot articulate that boundary in a sentence has a problem.
Often, yes, and firms frequently miss it. Lost profits work sits comfortably with a forensic accountant or an economist. A contested enterprise valuation is a distinct discipline with its own credentials, standards and body of practice, and an expert who values businesses routinely will be more comfortable defending a discount rate build-up than a generalist. In some matters the answer is both — a valuation specialist for the enterprise question and an economist for causation and the but-for trajectory feeding it.
Describe the business and the impairment. The Institute will help you see what the measure demands.