Arbitrators frequently confront a challenging scenario during final arguments: the breach is evident, the loss is undeniable, yet precise quantification remains elusive. Under Section 73 of the Contract Act, 1872, proof of actual loss is mandatory. However, commercial realities often defy exact calculations, necessitating what is known as an ‘honest estimate.’ This process becomes crucial when precise proof of loss is unattainable. The Supreme Court, in Trishala Jain v. State of Uttaranchal, delineated the difference between a mere ‘guess’—an estimate lacking specific evidence—and a ‘calculation,’ which is grounded in concrete evidence. The Court also introduced the term ‘guesstimate,’ which combines elements of both, offering greater certainty than a mere guess. Striking the right balance is critical; insufficient estimation can unjustly benefit the breaching party, while excessive speculation risks invalidating the award. This article explores how both common law and civil law jurisdictions navigate this challenging boundary, highlighting arbitral discretion in assessing damages.
Common Law: An Earned Exception
India’s approach to this issue is deeply rooted in the common law tradition. In the case of Gemini Bay Transcription Private Limited v. Integrated Sales Service Limited, the Supreme Court referenced the Calcutta High Court’s ruling in Frederick Thomas Kingsley v. Secretary of State for India, which established that damages are not deemed uncertain solely because they cannot be proven with mathematical precision. What is crucial is a reasonable certainty that the loss likely followed from the wrongful act.
The Supreme Court has therefore supported practical estimates of lost profits when exact proofs are unavailable. For instance, in Mohd Salamatullah v. Government of Andhra Pradesh and A.T. Brij Paul Singh v. State of Gujarat, the Court awarded lost profits at fifteen percent of contract value rather than demanding exact proof. Similarly, the case of Construction and Design Services v. Delhi Development Authority upheld using honest guesswork where the fact of loss was proven but quantification was elusive.
The Delhi High Court has adopted a similar stance in arbitration cases. In the Cobra Instalaciones ruling, it reinstated an award that apportioned losses from concurrent delays through reasonable estimation. In National Highways Authority of India v. ITD Cementation India Ltd, the Court emphasized that practical guesswork grounded in reasonable material should not be overturned merely for an alternative figure. In Simplex Concrete Piles v. Union of India, it upheld an award representing approximately one-thirteenth of the claimed sum as a reasonable estimate based on the record.
However, discretion is not without limits. In Unibros v. All India Radio, the Supreme Court nullified an award for profit loss, stating that formulae like Hudson’s may aid estimation but cannot alone demonstrate loss. Evidence of lost opportunity remains necessary, as courts cannot “make a guess in the dark.” This principle was echoed in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd, which stressed that damages must correspond to actual loss and not create a windfall. In Radiance Infracon v. GLS Infratech, the Delhi High Court stated that the law does not permit guesswork without basis: estimates must have a reasoned foundation linked to the available material.
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This tension is mirrored throughout the common-law world. The UK’s Court of Appeal in Chaplin v. Hicks awarded damages for loss of a chance despite the practical difficulty of precise calculation. Similarly, Singapore courts, as seen in CEF v. CEH, acknowledge that some losses are inherently challenging to quantify precisely. The US Supreme Court in Story Parchment Co. v. Paterson Parchment Paper Co accepted that when wrongs make certainty impossible, a reasonable inference may suffice.
Civil Law: Estimation as Ordinary Judgment
In contrast, civil law systems treat estimation as a routine part of the fact-finder’s role rather than an exception. French law integrates estimation into the ordinary functions of fact-finding, while German law permits estimation when the claimant has provided sufficient facts to support a minimal figure, absent any exceptional circumstances.
The Gulf approach extends this by considering estimation an ordinary judicial function. Under the UAE Civil Code, when compensation is not predetermined by law or contract, judges may assess it based on the harm incurred. Article 390(2) also allows courts to adjust agreed damages to reflect actual loss, even when parties predetermined a specific amount. This approach contrasts with cases like Dunlop Pneumatic Tyre v. New Garage and Kailash Nath Associates v. Delhi Development Authority, where agreed sums are generally upheld, barring legal limitations.
The UAE’s broad discretion has been refined by the new Civil Code, effective June 1, 2026. Replacing Article 390, Article 340 maintains the power to adjust agreed compensation if it is excessive or the contract was partially fulfilled, or if the creditor contributed to the loss. An award exceeding the agreed amount now necessitates proof of fraud or gross fault, introducing more structure while preserving judicial discretion to prevent unfair outcomes. Article 340 upholds this power against contrary contractual agreements.
Saudi Arabia’s Civil Transactions Law 2023 recognizes loss of profit as compensable, adopting a more flexible approach to uncertain future loss. Conversely, the DIFC and ADGM adhere to common law principles. For tribunals seated onshore in the Gulf, estimation remains a critical judicial function, albeit now subject to clearer safeguards in the UAE.
UNIDROIT Principles
Article 7.4.3(3) of the UNIDROIT Principles of International Commercial Contracts delegates the assessment of damages to the tribunal when the amount is uncertain. It embodies the broader principle that lack of mathematical precision does not automatically negate a damages claim, provided the tribunal’s assessment is reasonably based.
Convergence in Investment Arbitration
Investment tribunals adhere to the Factory at Chorzów principle, aiming to restore the position that would have existed sans the wrongful act. When future loss is uncertain, tribunals may estimate it, avoiding speculation. In Bear Creek Mining v. Peru, the tribunal dismissed a discounted cash flow valuation for an early-stage project due to its uncertainty, awarding sunk costs instead. Conversely, Tethyan Copper v. Pakistan resulted in a nearly USD 6 billion award for an unbuilt mine. The key takeaway is that methodology alone does not ensure certainty; the crucial factor is whether the reasoning effectively connects evidence to the awarded amount.
Conclusion: The Statutory Fence
The doctrine of guesstimation must be viewed within the statutory confines of an arbitral tribunal’s authority. Section 28(1)(a) of the Arbitration and Conciliation Act, 1996 mandates that a tribunal seated in India, except for international commercial arbitration, must decide according to Indian substantive law. The power to guesstimate is derivative, existing because Section 73 of the Contract Act, as judicially interpreted, allows estimation when loss is evident but its precise amount remains unestablished.
This power is bounded by two sides. First, Section 28(3) obligates the tribunal to consider the contract and applicable trade usages. In Associate Builders v. Delhi Development Authority, the Supreme Court ruled that an arbitrator exceeding contractual terms acts beyond jurisdiction, a principle echoed in Ssangyong Engineering v. NHAI as a form of patent illegality under Section 34(2A). An arbitrator estimating loss against an agreed damages measure or awarding excluded sums exceeds the parties’ mandate. Garg Builders and Union of India v. Manraj Enterprises reinforce this contractual boundary.
The second boundary is Section 31(3), requiring a reasoned award. While Ssangyong established that mere contravention of Indian substantive law is insufficient to annul an award, an unreasoned award, or one lacking connection to the record, remains vulnerable. Thus, the reviewing court’s inquiry is narrow, focusing on whether the arbitrator provided reasons and adhered to the contract, not whether the figure was correct. This distinction is significant because an appellate court cannot substitute its assessment merely due to a preference for a different figure or methodology. The emphasis remains on legality, contractual limits, and reasoning adequacy, preventing estimation from devolving into speculation while maintaining the tribunal’s constrained role in quantifying proven loss.
This is the quiet implication of the doctrine. Arbitrators lack unfettered judicial discretion, possessing only a limited power to estimate within statutory and contractual confines. When the breach is established, the loss is genuine, and exact calculations are absent, the estimate may endure—not necessarily for its correctness, but for its reasoning.
About the Authors:
Shantanu Agarwal is the Managing Partner of Lexster Law LLP. Ananya Garg is a Senior Associate, and Tazeen Ahmed is an Associate.
Disclaimer: The opinions in this article are those of the author(s) and do not necessarily reflect the views of Bar & Bench.
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