A recent Court of Appeal decision has confirmed that staff costs can form part of a claim for damages. The decision is an important one for businesses involved in litigation and having to divert substantial staff and management time from their normal duties towards dealing with the consequences of a third-party breach of obligation.
The decision in Aerospace Publishing v Thames Water Utilities concerns a dispute over the damages recoverable by Aerospace Publishing following the flooding of their archives in 2001. Flooding occurred after the bursting of a mains water pipe for which Thames Water was responsible. Aerospace Publishing claimed not only for the losses they incurred in respect of lost and damaged archive material, but also for special damages in respect of work done by its staff in relation to and as a consequence of the flood.
The work undertaken by the staff included the inspection and assessment of the flood damage. Aerospace Publishing contended that, had the flood not occurred, their employees would have concentrated on their usual activities out of which they would have made money.
In response, Thames Water argued that as the staff involved were principally paid by reference to fixed salaries, in order for Aerospace Publishing to prove its claim, it had to establish that the employers had been diverted from revenue-generating activities and that their diversion had resulted in a loss of revenue. It was not open to Aerospace Publishing, Thames Water said, to simply infer a loss from a general diversion of staff from normal activities.
The Court of Appeal, in considering the matter, reviewed a number of authorities, including Tate & Lyle Food and Distribution v GLC [1982]; Standard Chartered Bank v Pakistan National Shipping Corporation [2001]; Horace Holman Group v Sherwood International Group [2001]; Admiral Management Services v Para-Protect Europe [2002]; and R+V Versicherung v Risk Insurance and Reinsurance Solutions [2006].
In view of those authorities, the Court of Appeal said that the following were the established propositions:
1. the fact and, if so, the extent of the diversion of staff time has 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 such a diversion has 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 should 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 to 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 their time to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the cost of employing them during that time.
The court went on to say that, in Aerospace Publishing, the diversion of the time of a significant number of Aerospace’s employees, particularly their senior employees, was set out in detail and adequately established and that, as there could be no sensible challenge to a conclusion that the business had thereby been disrupted, indeed substantially so, the inference could be drawn that the employees had been diverted from revenue-generating activities and accordingly damages for the cost of employees referable to the diversion should be allowed.
The lesson that businesses can take from the Aerospace Publishing case is that, where they find themselves at the receiving end of another party’s breach of contract or negligent action which results in their management and staff becoming tied up in efforts to mitigate or assess the damage, they should ensure that a careful record is kept of their time and efforts. The quality of the evidence is all important. The clearer and more comprehensive the records that the business is able to put forward on the diversion of management and staff resources, the more likely it is that the court will be persuaded to allow recovery from the wrongdoer by the business.
Milton McIntosh is a solicitor-advocate, barrister and chartered surveyor and is a member of the commercial litigation group at Kirkpatrick & Lockhart Preston Gates Ellis in
