The Journal of Critical Analysis of Judicial Decisions

The Journal of Critical Analysis of Judicial Decisions

Expectation or Reliance: An Analysis of the Arbitration and Judicial Decisions in a Telecommunication Services Case Regarding the Criteria for Evaluation of Lost Profit

Document Type : Original Article

Authors
َAbbas Mirshekari 1
Mona Abdi 2
1 Associate Professor of Department of Private and Islamic Law, Faculty of Law & Political Sciences, University of Tehran, Tehran, Iran.
2 Ph. D in Private Law, Faculty of Law, Shahid Beheshti University, Tehran, Iran.
10.22034/analysis.2025.2073654.1123
Abstract
Imagine a contract has been concluded between parties A and B for the provision of goods or services. A has incurred 30 units of costs to perform the contract including renting for the workplace, labors and vehicles, procurement of materials and equipment and so on. Taking into account a profit margin of 10 units, A is ready to fulfill his/her obligation. If, however, A is deprived of his/her expected profits due to B’s breach of contract, how much damages suffered by A? In other words what is A’s expectation from the performance of this contract? Does it include only 10 units of net profit he/she has anticipated (Expectation damages) or does it also include the 30 units of costs incurred (reliance damages)? The simple case presented as an example is one of the challenging questions in common law framed as follows: is it possible to simultaneously assess damages based on both expectation and reliance criteria? For a long time, the answer given by prominent scholars and judges was negative with the argument that applying more than one criterion for assessing damages in every case would lead to double/over compensation. Therefore, only one criterion should be applied to evaluate the incurred losses. However, after some time, this objection was addressed bylegalscholars and economists. They clarified that what leads todouble/over compensation is the cases that in which the profits are calculated on a gross basis, however, if calculated on a net basis, awarding compensation for both Incurred costs and expected profits under certain conditions arenot problematic. The only limitation inthisregard is considering the prevention ofdoublerecovery rule. The decisions issuedby arbitrators andjudges analyzed in this article, are among the few notable decisions addressing this issue inIranianlaw though they appear open to criticism due to ambiguities in meeting necessary conditions for calculation some costs.
Keywords
Contractual expectation
Reliance to contract
Gross profit
Net profit
Preventing over/double-compensation
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The Journal of Critical Analysis of Judicial Decisions
Volume 4, Issue 8 - Serial Number 8
January 2026
Pages 361-404