Causation and Financial Losses with Prem Lobo of Cohen Hamilton Steger & Co (Toronto)

BVWire–UKIssue #45-2
December 20, 2022

Damage claims caused by breach of contract, negligence or tort claims, infringement, or other causes have the same assumptions, Prem Lobo (Cohen Hamilton Steger & Co of Toronto) told Society of Shares and Business Valuers (SSBV) members in last week’s session for members of the SSBV. “Causation always involves assumptions of duty, wrongdoing, causation, and damages or a remedy,” he began in his session Causation and Financial Losses.

However, business valuers “cannot make assumptions” about the legal grounds for claims—including whether the plaintiff holds the burden of proof or whether the familiar “but-for” valuation methods are appropriate. There’s also the complicated question of causation. Quoting Jon Snow of “The Game of Thrones,” Lobo says, “We look at the stars and all see such different things.”

“There’s a distinction between correlation versus causation,” Lobo says. Usually, the valuation expert does not need to prove causation. “This is a factual determination,” but sometimes a statistical analysis may be helpful to analyze causation. “It’s up to the courts and the lawyers to provide evidence.”

However, “depending on the specific facts, loss experts may have to do analyses” supporting claims of causation. This is generally to “obtain sufficient degree of comfort that there is a reasonable, proximate link” between the action and the loss,” Lobo says. He reminds business valuers that, “as usual, facts will outweigh assumptions in the courts—for instance evidence of specific customers that left because of documented actions of individuals, less any unrelated potential causes.”

Court cases, contracts, and judicial changes can affect these grounds. But “business valuation experts must be able to demonstrate” whether:

  • There were other causal possibilities;
  • The loss has factual clarity;
  • The damages can be verified through multiple approaches and then reconciled; and
  • The causation is measurable by factors involving business resources or personnel, customer changes, market changes, competition changes, or other business changes.
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