Wasted management and staff time – evidence needed to recover losses

The High Court recently held that damages would not be awarded for wasted management and staff time despite finding an unlawful means conspiracy to have existed. In Zenith Logistics Services (UK) Ltd and others v Keates and others, Judge Keyser QC held the monetary loss needs to be proven, otherwise the damages will not be awarded.

Claim

Zenith claimed £281,500 for lost management time spent investigating and addressing the wrongdoing. £250,000 was attributed to Iain Liddell, the Managing Director and ultimate beneficial owner of the Uniserve Group, of which all three claimant companies were members. His time was valued at 1,000 hours at £250 per hour. This sum reflected an estimate of the time taken to commission and oversee investigations into the wrongdoing, which could have been spent furthering the business of Uniserve. There were also claims for five other individuals’ time.

Position in England and Wales

The relevant principles for claiming lost management and staff time are taken from Aerospace Publishing v Thames Water Utilities, which established that evidence is required to prove:

• the extent of the diversion of work;
• the significant disruption caused as a result; and
• the issues that have diverted the personnel from generating revenue for the business (although the courts may infer this from the circumstances).

In Aerospace, the cost of staff time was allowed to be recovered in the aftermath of a flood that damaged, and required the reinstatement of, Aerospace’s archive of historic aviation material. Aerospace had detailed the time lost and established the substantial disruption to the business, from which the High Court judge had been entitled to infer that the employees were diverted from activities that would have generated revenue for the business.

However, time spent inspecting and assessing the damage in the months before the claim was issued, was not recoverable. That work was considered referable to preparation of the claim rather than the reconstitution of the business; it related to the costs of raising the action rather than the damages which could be awarded.

The principles in Aerospace have been followed in other cases such as Borealis AB v Geogas Trading SA, in which the High Court used a broad brush approach to award €75,000 for wasted management time.

Difficulties with the claim

In Zenith, the court identified five principal difficulties with the claim:

1. No documents were provided to demonstrate the claimed hourly rates, which were estimates.
2. No documents, such as time-sheets or diaries, were provided to support the figures for the total time spent.
3. No breakdown of the time spent was provided. The court could not determine the time spent on each aspect of the claim as distinct from pursuing the litigation.
4. No direct evidence of the disruption to the business was provided, with the exception of Mr Liddell’s time. Other disruption could be inferred, but the court was less inclined to do so where the time related to more junior staff.
5. The diversion was claimed to affect the Uniserve Group generally rather than a particular Claimant.

Judgment

Although a common sense and broad brush approach should be used, an award of damages must be evidence-based. It was obvious that time had been diverted from more productive activities, but there was “no rational way” to quantify the time spent or to apportion it between the different claims or claimants or to separate it from time spent preparing for the case to be raised at court. Therefore, the court did not award damages in this respect.

Position in Scotland

The position in Scotland is similar, as demonstrated in Euro Pools Plc v Clydeside Steel Fabrications Ltd. (2003), in which it was held that, where the time of a managing director and employees was taken up with remedial work following a breach of contract by a supplier, this represented a loss to the company. The quantification of that loss could be on any objectively reasonable basis, but this could include recovery of employment costs and overheads or an equivalent commercial rate. However, the basis of these costs and the lost time would need to be proved.

Points to take away

• Wasted management and staff time costs caused by a breach of contract are a legitimate damages claim. However, these claims are often difficult to prove. They will ordinarily be looked at on a common sense and broad brush basis. But the courts will need to see evidence to prove the loss of time suffered, the impact on the business and the rates or costs claimed.
• Management and other staff seldom keep records of their time spent managing the impacts of a breach of contract and it is often difficult to establish that time retrospectively. 
• When working on issues which would constitute wasted management or staff time, accurate records of time spent, with detailed narratives of what was being done, should ideally be kept, in order to support a later claim.