What Is an Indirect Loss?

Indirect loss, "direct loss" symmetry. It is also called "negative loss" and "loss of available profits." Refers to the loss of available property benefits suffered by a civil subject as a result of an illegal act. Property loss. According to the civil law theories and practices of the countries of civil law, the available benefits that constitute indirect losses must meet the following conditions: (1) must be the expected benefits that the parties have foreseen or should reasonably foresee; (2) must be benefits that must be obtained in the future; (3) It must be an interest that is directly related to and violated by the illegal act. For the compensation of indirect losses, the civil law provisions of civil law countries are different. According to Chinese law, indirect losses caused by general breach of contract or infringement should be fully compensated in principle. ^[1]

Indirect loss

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Indirect loss, "direct loss" symmetry. It is also called "negative loss" and "loss of available profits." Refers to the loss of available property benefits suffered by a civil subject as a result of an illegal act. Property loss. According to the civil law theories and practices of the countries of civil law, the available benefits that constitute indirect losses must meet the following conditions: (1) must be the expected benefits that the parties have foreseen or should reasonably foresee; (2) must be benefits that must be obtained in the future; (3) It must be an interest that is directly related to and violated by the illegal act. For the compensation of indirect losses, the civil law provisions of civil law countries are different. According to Chinese law, indirect losses caused by general breach of contract or infringement should be fully compensated in principle. ^[1]

1.Indirect losses caused by property damage

The indirect loss of property damage refers to the loss of the future property interests of the victim within a certain range by the infringer's infringement on the property owned by the victim. This indirect loss has three characteristics: first, what is lost is a future available benefit, and when the infringement is carried out, it has only a possibility of obtaining property, not a practical benefit; the second is This lost future benefit is of practical significance, not abstract or hypothetical. Third, this available benefit must be within a certain range, that is, the scope of the direct impact of the damage to the property is beyond this range. Cannot be considered as an indirect loss.

"Indirect losses are illegal acts against value-added

1. The nature of the benefits available

The available benefits must be net profit, including the expected net profit that can be obtained after obtaining property delivered by the other party and using it to engage in production as well as the net profit obtained after using the service or service through a labor service or service contract. Excluding fees and taxes paid to obtain these profits.

Therefore, the available benefits mainly include: production profits, operating profits, resale profits, etc.

2. Elements of Compensation for Available Loss of Interest

According to the strict liability system adopted in accordance with the contract law, compensation for this loss only requires three requirements:

2.1 breach of contract

2.2 Damage to facts

2.3 Causality between the above two elements

3. Calculation of Compensation for Lost Benefits

Compensation for available loss of interest can be divided into contractual compensation and statutory compensation. Contracted compensation takes precedence over statutory compensation.

3.1 Agreed compensation means that the calculation of the amount of loss is in accordance with the agreed calculation method of the contract parties.

3.2 Statutory compensation refers to the calculation of the amount of loss, which is determined by the court in accordance with the law in the absence of the foregoing agreement.

3.2.1 Loss of production profit

Most of these losses are related to the purchase and sale contracts for the raw materials of the production equipment. Such losses can be calculated based on the delayed production period and the comparable profit rate.

3.2.2 Loss of operating profit

Most of these losses are related to contracting, leasing contracts, labor services, and service contracts. Such losses can generally refer to the average profit of the victim's previous operations.

3.2.3 Loss of resale profits

This type of combined loss is generally the difference between the resale contract and the original contract price, minus the necessary resale costs. Of course, the resale contract here must be signed before the breach occurs.

4. Limitation on the scope of compensation for loss of available profits

4.1 Foreseeable rules

The foreseeable rule, also known as the foreseeable rule, means that the breaching party shall only be liable for the losses that it can foresee when contracting.

4.1.1 The foreseeable subject should be the breaching party

4.1.2 The time foreseen shall be at the time of contracting

4.1.3 The content of foresight not only requires the type of loss to be foreseen, but also includes the amount of foresight to be more in line with the purpose of the principle of foresight.

4.1.4 The criteria for judging reasonable foresight reflect the discretion of judges.

The main standards are:

4.1.4.1 The standard of a reasonable person: Look at a common person of the same type as the defaulting party, that is, use a standard of a reasonable person to measure whether the defaulting party can or should foresee.

4.1.4.2 Special standards of the breaching party: consider the identity and occupation of the breaching party in detail, the breacher's knowledge of the victim's identity, the level of the defaulting party asking for the consideration, and the victim's disclosure of special information to the breaching party.

The factors that affect the special foresight of the defaulting party are the following four points: A, B, C, and D:

A. The identity and occupation of the breaching party

The identity and role of the breaching party largely indicate its understanding of the functions and uses of the contract's subject matter, which in turn affects its ability to foresee the magnitude of the losses caused by the breach of contract. For the same batch of goods, the carrier is obviously not as clear as the manufacturer of the goods about the function, purpose of the goods and the purpose of the goods required by the victim. Therefore, in the contract of carriage, if the carrier breaches the contract, the resale or loss of profits caused to the injured party is not within the scope foreseen.

B. Understanding of the victim's identity

If the buyer is a productive enterprise, when the seller defaults, the loss of production profits suffered by the buyer falls within the range reasonably foreseen by the seller, but the resale profit loss proposed by the buyer does not fall within the range of reasonably foreseen.

C. The defaulting party asks for the level of consideration

The consideration is often proportional to the potential risk of the contract. The greater the risk, the higher the asking price. Therefore, the defaulting party with higher asking price has better ability to predict losses than the defaulting party with lower asking price.

D. Victim's disclosure of special information to the breaching party

The defaulting party is generally responsible for losses associated with the ordinary use of the subject matter of the contract. However, if the injured party discloses the information about the special purpose of the contract subject matter to the breaching party, the loss-associating party should foresee the loss.

4.2 Damage mitigation rules

Victims shall not be compensated for losses which they could have reasonably avoided.

4.2.1 Theoretical basis for mitigation rules

4.2.1.1 Objective requirements of the principle of good faith

4.2.1.2 Causality

The loss that should have been mitigated but not mitigated was equal to the victim's own act or omission. The causal relationship between the breach and the damage has been interrupted, and the breaching party is no longer responsible for this loss.

4.2.2 Conditions under which damage mitigation rules apply

4.2.2.1 Victims have objective conditions to take appropriate measures to prevent the loss from expanding

4.2.2.2 Victims have subjective conditions to take appropriate measures to prevent the loss from expanding

4.2.2.3 Consequences of the victim's failure to take appropriate measures

4.2.3 Reasonable judgment of victim's derogation measures

The purpose of derogation measures is to encourage victims to take reasonable measures to avoid wasting social resources, so victims should not be required to take measures that would cause them an undue burden, danger or humiliation. Therefore, the following points should be noticed when judging the reasonableness of the victim's behavior:

4.2.3.1 Pay attention to the timing of taking derogation measures. The ex post facto should not be used to measure whether the previous behavior is reasonable.

4.2.3.2 Pay attention to whether the methods and costs for taking derogation measures are appropriate.

4.2.3.2 Pay attention to whether the subjective mentality and behavior when taking derogation measures were reasonable at the time.

Whether the victim's expenses can be compensated depends on whether the behavior is reasonable, not whether it has achieved the actual effect of derogation.

4.3 Profit and Loss Rule

The benefit obtained by the victim for the same reason as the damage occurred shall be deducted from the damage suffered, that is, the "net loss" (real loss) shall be calculated.

4.3.1 Theoretical basis of the rule of profit and loss

The rule of profit and loss offset is to compensate the injured party for the loss caused by the breach of contract, and it does not make the victim obtain an undue profit, so the victim shall not be more superior to the damages than the damage.

Note: The rule of profit and loss is to determine the actual loss of the victim.

4.3.2 Conditions applicable to the profit and loss offset rule

4.3.2.1 After the breach of contract, the victim not only suffered losses, but also obtained certain benefits.

4.3.2.2 Losses and benefits are based on the same breach of contract, and the two have a causal relationship.

4.3.3 The benefits that can be deducted when applying the profit and loss offset rule include:

4.3.3.1 Taxes payable by the injured party

4.3.3.2 Residual value after destruction of the subject matter

4.3.3.3 Expenses that should have been paid to continue to perform the contract but were exempted due to the occurrence of the breach

Attachment : Article 113 of the Contract Law:

If one of the parties fails to perform the contract obligations or does not comply with the contract obligations, causing losses to the other party, the amount of compensation for damages shall be equivalent to the losses caused by the breach of the contract, including the benefits that can be obtained after the performance of the contract, but shall not exceed the time when the breaching contract concludes the contract Foresee or should foresee the possible losses due to breach of contract.

Direct loss refers to the infringement by the perpetrator of the victim's possession of or damage to the victim's property, resulting in the actual reduction in the amount of property that the victim now owns.

Some scholars in China believe that pure economic loss is also called indirect loss, which manifests itself as an indirect damage. However, in the 2002 and 2005 IOPC Fund's Claims Manual, pure economic losses emphasized that the property of the owner or user suffered a loss of income although it was not infringed. For example, after the ship accident, the fishery resources in the accidental sea area were damaged, and the decrease in beach tourists led to the loss of income of nearby hotels, restaurants, and yachts, and the loss of income of investors in specific tourism projects and operators of fish in the sea area. It is pure economic loss; while indirect loss emphasizes the loss based on the premise of damage to the property of the victim, such as fishermen's fishing nets and fishing boats being contaminated, and the loss of benefits during fishing gear decontamination is a loss Indirect loss. It can be seen that indirect loss and pure economic loss are both economic losses, but the premise of their generation is different; compared with direct loss, pure economic loss is a kind of indirect loss.