Recovery of management time

Inevitably, if a party suffers a loss caused by a tort, that party will incur wasted staff and management time when seeking to remedy or mitigate that loss. The question as to whether a claimant is then entitled to recover that wasted managerial and staff time is not always an easy one to answer. For example, does the injured party have to establish a loss of profit (i.e. show that income-generating opportunities were lost and/or additional expenses were incurred) before it is entitled to recover this time? This question recently came before the English Court of Appeal in the case of Aerospace Publishing Limited and Anr v Thames Water Utilities Limited.[1]

The general position is that a claim for management time can, as a matter of principle, be recoverable on the same basis as overheads and profits. However, it is important to ensure that there is no overlap between any claim for management time and a claim for increased contribution to a contractor’s overheads and profits. Equally important is the need to ensure that proper records are kept of time spent and the work carried out. For, as the Aerospace case demonstrates, there is a difference between time and expenditure incurred in dealing with the loss suffered, which may well be recoverable as damages, and time and expenditure spent in dealing with any potential claim, which may only be recoverable (and assessed) as costs of the action.

In last year’s Review we described the case of R+V Versicherung AG v Risk Insurance & Reinsurance Solutions SA & Others,[2] where Mrs Justice Gloster held that, as a matter of principle, the costs of wasted staff time are recoverable where the claimant was claiming, as damages, internal management and staff costs and internal overheads.

Here, the judge stated that it had to be demonstrated with sufficient certainty that the wasted time had indeed been spent and that the expenditure was directly attributable to the tort complained of. In other words, for an injured party to be able to recover, that party must show both that there had been a significant disruption to its business and that the staff had been deliberately diverted from their usual activities. If you cannot show this, then the alleged wasted expenditure on wages could not have been said to be directly attributable to the tort. In coming to this decision, the judge had disapproved of a previous case, Admiral Management Services Limited v Para-Protect Europe Limited.[3] As both decisions were of first instance, it was thought that there was some uncertainty about this issue. The Aerospace case has now resolved that uncertainty. In his judgment, LJ Wilson noted that although the difference between the two decisions was not, in his words, “as stark as may appear”, to the extent that there was a difference, he preferred the approach of Mrs Justice Gloster.

The Aerospace case

The Aerospace case was an appeal following a quantum hearing. Liability had been admitted. Following a mains waterpipe burst, considerable quantities of water had entered the premises occupied by the claimants who were publishing companies. The water caused significant loss and damage to the claimants’ archives, in particular to an extensive archive of aviation photographs and the reference material. As part of their claim, the claimants had sought their costs in respect of the diversion of staff work necessarily done in relation to, and consequent upon, the flood. The claim was in two parts, one in respect of the claimants’ employees and one in respect of two ex-employees who had returned to work on a freelance basis.

In relation to the freelancers, Thames Water said that the work they carried out was an item of costs. LJ Wilson agreed that the assessment work done by them was directly referable to the preparation of the claim. Thus, that part of the claim would fall to be assessed as part of the overall costs of the action. The second part of the claim, that part referable to employees’ work, related to work carried out in the months after the flood in respect of works of salvage and reorganisation, work which was reactive to the flood. The claimants said that had it not been for the flood, their employees would have carried out their usual activities, out of which they would have made money.

Thames Water said that such a claim must be strictly proven; it cannot simply be inferred. It was their view that the claimants had not demonstrated that the employees had been diverted from other relevant revenue-generating activities. Having considered the relevant authorities, LJ Wilson set out the following guidelines:

1. the facts and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the claimant to adduce is not adduced, he is at risk of a finding that they have not been established;
2. the claimant also has to establish that the diversion caused significant disruption to its business; and
3. even though it may well be that strictly the claim could be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the defendant can establish the contrary, it is reasonable for the court to infer from the disruption that, had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time.

On the facts here, the Court of Appeal considered that the diversion of the time of a significant number of the claimants’ employees was set out in sufficient detail and so was adequately established. Accordingly, there could be no sensible challenge to a conclusion that their business was thereby disrupted. The claim therefore succeeded. Thus, the Court of Appeal has given valuable guidance as to what you need to do to prove a claim for wasted management time. The key is detail. How much time is claimed? How and why were the staff diverted from their work activities? And remember that the records must be sufficient such that a third party – be they judge or adjudicator – can make sense of them many months (or maybe years) after the event.

Bridge v Abbey Pynford

The case of Bridge UK.Com Limited v Abbey Pynford plc[4] which came before Mr Justice Ramsey in April provides further evidence of the way the courts will approach this matter. Here Bridge carried out a commercial printing and mailing business and in 2002 decided to move its business from Romford to Heybridge and to install there a Heidelberg 10-colour 102 Speedmaster printing press (the “Press”) before taking occupation. The Press needed adequate foundations as it weighed 62 tons, and Bridge contacted Abbey to carry out the relevant piling and construction works.

The parties entered into a contract on 15 August 2002, a term of which was that the contract period would be 10 days. In fact, due to various difficulties, whilst piling was commenced on or about 27 August 2002 the Press was only commissioned and ready for printing by 28 October 2002. Bridge sued Abbey for its losses in not being able to use the Press at the time that it thought it would be able to. Part of that claim was for management costs. As part of its claim, Bridge claimed for 128 hours of a director’s time in dealing with the problems caused by Abbey. The hours were based on a retrospective assessment made by looking through documents which recorded the events of the delay. The assessment was not based on records of time spent.

Judge Ramsey was asked whether a retrospective assessment of executive time, based on a witness statement and without records, was a sufficient method of assessment. He said that in the absence of records, evidence in the form of a reconstruction from memory is acceptable. However, he also thought it right that a discount be applied to the court’s award to reflect the uncertainty arising from this method – here 20%.

This is further authority to the effect that management time claimed can be supported by witness evidence rather than by written record. However, those wishing to rely upon this method of substantiation will be open to having a discount applied to the claim to combat uncertainty.

[1] [2007] EWCA Civ 3.

[2] [2006] EWHC 1705 (Comm).

[3] [2002] EWHC 233 (Ch).

[4] [2007] EWHC 728 (TCC).