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Time is of the essence when it comes to paying damages

LAW REPORT

Award of damages for inconvenience and trouble caused by a breach of contract has long been recognised. But difficulty arises when it comes to quantifying time spent trying to resolve problems writes Lindy Patterson

A COMMON issue for many businesses involved in the construction industry is the recovery of time spent investigating and resolving problems caused by others; there is always the question of how to quantify such damages.

The recent Scottish case of Euro Pools v Clydeside Steel Fabrications examines this question again and may give considerable latitude to claimants in the way they formulate such claims.

It has long been recognised that damages may be awarded for 'inconvenience and trouble' caused by a breach of contract. Damages for business interruption may also be awarded. The difficulty is the amount of time senior personnel have to put in to resolve matters.

The 1982 case of Tate & Lyle v Greater London Council is often cited in this connection.

The GLC had constructed ferry terminals on the Thames which caused the river bed to silt up.

Tate & Lyle, which carried out business on the river, spent large sums of money over seven years dredging the silt. It sued for damages and included a claim for special damages for 'managerial and supervisory resources in attending to the problems created by the infringement of their rights'.

The court considered the claim for managerial time, which the GLC continued to dispute.

Tate & Lyle produced no evidence of the managerial time involved. Instead, its claim was set at 2.5 per cent of its total claim which it justified by drawing an analogy with shipping cases where Admiralty practice allowed one per cent of the figure for collision damage to cover expenses and work done in the office, without the need for proof.

The GLC maintained that managerial expenses could only be recovered as a loss of profit or that they might be recovered as losses if quantified by acceptable evidence. But there was no such evidence in this case.

The judge considered two issues here. The first was whether there was any basis for suggesting that managerial time, which might otherwise have been devoted to the company's normal trading activities, had to be spent on initiating and supervising remedial works.

The second was whether it was reasonable to expect to see evidence of this alleged use of managerial time or whether it was so difficult to quantify that the application of some suitable rule of thumb was justified.

The judge agreed that managerial time had been spent dealing with remedial measures and accepted it was extremely difficult to quantify this time. But he pointed out that Tate & Lyle should have been able to keep some record to show the extent to which its trading routine was disturbed.

The judge found Tate & Lyle had failed to prove any sum was due under this claim.

By contrast, in the recent cases of Lomond Assured Properties v McGrigor Donald (2000) and Pegler v Wang (2000), claims for management time spent investigating breaches of contract were allowed. In both cases, no records of management time had been kept and both defendants relied on the Tate & Lyle case to argue 'no records; no recovery'.

In these two cases the judges felt bound to consider oral evidence as to the time spent and, although both felt it rather unsatisfactory, they awarded substantial damages, albeit less than the sums claimed.

And so to the Euro Pools case.

Clydeside Fabrications supplied Euro Pools with filtration tanks for installation at two new leisure centres. Under the contracts Euro Pools was obliged to remedy defects in its works for 12 months following commissioning. Shortly after commissioning it was discovered that both tanks supplied by Clydeside were defective. Euro Pools investigated and was required to make good the defects. It then sued Clydeside for damages arising from breach of contract.

The damages claimed included the value of the time spent by Euro Pools' personnel in investigating, de-commissioning and re-commissioning the filtration tanks. This included their managing director's time as well as that of engineers. The sums claimed for the managing director's time were calculated by reference to an hourly rate derived from his annual salary plus National Insurance and 350 per cent uplift for overheads. The sums claimed for site engineers and staff were hourly rates for overtime plus 350 per cent for overheads. The percentage for overheads was derived from contractual dayworks charges.

Euro Pools claimed further damages for paying staff overtime so they could complete their normal duties outside normal working hours. They also claimed mileage rates for extra travel.

Clydeside argued such a formulation of loss was incorrect in law. Any disruption of business had to be traced to an identifiable cost or loss. In the case of the managing director, there was no suggestion he had been deflected from other remunerative activity and that Euro Pools had sustained any loss as a result of him trying to resolve the problems. His salary would be paid by the company whatever work he did - the company incurred no extra cost simply because he had to work harder.

The judge rejected these arguments. He considered the overriding principle was that the loss be quantified in a manner that was objectively reasonable.

Breaches of contract typically had to be dealt with by the innocent party on an unplanned, piecemeal basis which commonly involved a substantial degree of disruption of that party's activities.

In these circumstances dayworks rates or similar contractual rates designed to deal with unforeseen work would, together with overheads, be an appropriate basis for a claim.

Key points

Management time spent by the innocent party investigating and dealing with the disruption that follows a breach of contract is, in principle, recoverable as damages

Although it is sensible for a record to be kept of hours spent, the absence of such a record does not prevent recovery

Standard methods of charging include dayworks and contractual charge out rates or tender rates